BOJ Cuts Rates

  • At its meetings on August 16 and 19 2024, the Monetary Policy Committee (MPC) unanimously agreed to reduce the policy rate by 25 basis points (bps) to 6.75%, effective Wednesday, 21 August 2024. Since November 2022, the BOJ has maintained the rate at 7.00%, following an aggressive hiking cycle when it raised its policy rate by 650 bps between September 2021 and November 2022 to tame a sharp rise in inflation.
  • The reduction in the policy rate occurs mere days after the business community's appeal for rate cuts to mitigate the anticipated economic downturn resulting from the ongoing effects of Hurricane Beryl.
  • With headline inflation becoming more anchored in the BOJ’s target range of 4.0% to 6.0%, it created room for a change in the interest rate cycle. Inflation has fallen within the Central Bank’s target range for five months consecutive and is projected to largely remain within the target range over the next two years.
  • However, the MPC anticipates a temporary uptick in headline inflation over the next 3 to 5 months in the aftermath of Hurricane Beryl. According to the Government of Jamaica, domestic fiscal policy will tackle post-hurricane recovery by using existing savings and insurance, along with re-prioritizing expenditures. In this light, the Committee believes that fiscal policy will not pose a risk to inflation in the near term.
  • The MPC’s view is that economic conditions generally support the prospect of a low, stable, and predictable inflation outlook. Local inflation has been supported by a stable USD to JMD exchange rate, favourable international commodity prices and slowing inflation in the United States.
  • While the inflation outlook appears balanced, escalating international shipping costs, a more severe-than-expected impact from Hurricane Beryl and additional adverse weather conditions could contribute to an increase in inflation. 
  • Any future monetary policy decisions to further reduce interest rates will continue to depend on incoming inflation data.
  • With its move yesterday, the BOJ joins central banks in Latin America that began cutting their policy rates as inflationary pressures have eased and have done so ahead of the US Federal Reserve, which is widely expected to cut rates when it meets in September.

(Source: BOJ, NCB Capital Markets Limited)